Federal Court of Australia

Reid, in the matter of Kununurra Panel Beating Works (Holdings) Pty Ltd (in liq) [2025] FCA 593

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to rule 8.21(1) of the Federal Court Rules 2011 (Cth), the plaintiffs have leave to amend the originating process filed 28 February 2025 in the form annexed to these orders.

2.    Pursuant to section 579E(1) of the Corporations Act 2001 (Cth) (Act), the companies in the schedule, being the second and third plaintiffs, are a pooled group for the purposes of section 579E of the Act.

3.    The costs of this proceeding be costs in the pooled windings up of the companies in the schedule, being the second and third plaintiffs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

O’BRYAN J:

Introduction

1    By an originating process dated 28 February 2025 (and filed on 4 March 2025), the first plaintiff, Stuart George Reid (the Liquidator), in his capacity as liquidator of the second and third plaintiffs, applied for orders pooling the assets and liabilities of the second and third plaintiffs in their respective liquidations. The second and third plaintiffs are two related companies, namely Kununurra Panel Beating Works (Holdings) Pty Ltd (in liq) (Holdings) and Kununurra Beating Works Pty Ltd (in liq) (Workshop) (together, the Companies). If made, the effect of the pooling order is that the Companies become jointly and severally liable for the debts of, and claims against, each of them, with debts owing as between the Companies extinguished. In this way, the assets available in each winding up become applicable towards satisfaction of the external debts of both of the Companies: Re Kirby Street (Holding) Pty Ltd [2011] NSWSC 1536; 87 ACSR 84 (Kirby Street) at [3].

2    By orders made on 14 March 2025, the plaintiffs were required to give notice of the application to the creditors and/or contributories of the Companies and the Australian Securities and Investments Commission (ASIC).

3    The Court heard the application on 16 May 2025. The Liquidator relied on two affidavits affirmed by him on 27 February 2025 and 23 April 2025, along with written submissions dated 12 May 2025. The Liquidator deposed to the steps taken to give notice of the application to the known creditors and contributories of the Companies in accordance with the orders made on 14 March 2025. No creditor, contributory or other interested party appeared at the hearing to oppose the orders sought.

4    The Court is empowered to make pooling orders in a liquidation under Div 8 of Pt 5.6 of the Corporations Act 2001(Cth) (Act), subject to the statutory requirements contained in that Division. However, by the originating process, the Liquidator applied for the pooling orders under s 90-15 of the Insolvency Practice Schedule (Corporations) (IPSC), being Sch 2 to the Act.

5    At the hearing of the application, the Liquidator was asked to address the questions: why the application had been made under s 90-15 of the IPSC; and whether the Court has power to make a pooling order under s 90-15 of the IPSC.

6    As to the first question, the Liquidator explained that, at the time of filing of the originating process, it was unclear whether the Companies would satisfy at least one of the “gateway criteria” under s 579E(1)(b) as at the time of the order (as per Morgan v McMillan Investment Holdings Pty Ltd (2024) HCA 33; 419 ALR 256 (Morgan) at [34]). The only available criterion in the circumstances was that stated in s 579E(1)(b)(iv): one or more companies in the group own particular property that is or was used, or for use, by any or all of the companies in the group in connection with a business, a scheme, or an undertaking, carried on jointly by the companies in the group. However, by the time of the hearing on 16 May 2025, the Liquidator had established that rental income from a property owned by one of the Companies was used for the purpose of a business carried on jointly by the Companies, thus satisfying that criterion. As such, the Liquidator was able to rely on the powers conferred on the Court in Div 8 of Pt 5.6. At the hearing, the Liquidator sought leave to amend the originating application to bring the application under s 579E of the Act. Leave was granted at the hearing as there was no substantive change to the orders sought from the Court.

7    As a consequence of the amendment, it became unnecessary to resolve the second question: whether the Court has power to make a pooling order under s 90-15 of the IPSC. At the hearing, counsel for the Liquidator was unable to identify any previous case in which s 90-15 of the IPSC has been relied upon to make an order pooling the assets of two companies in liquidation. Nevertheless, counsel submitted that s 90-15 has been variously described in the cases as very broad and unconstrained and that it is well established that the provision accommodates the determination of substantive rights, provided appropriate notice has been afforded to potentially affected parties. Counsel further submitted that the authorities provide some support for construing s 90-15 as empowering the Court to make a pooling order (principally relying on Dean-Willcocks v Soluble Solutions (1997) 42 NSWLR 209, Re Charter Travel Co Ltd (1997) 25 ACSR 337, Re Switch Telecommunications [2000] NSWSC 794; 35 ACSR 172 and Algeri v Koko Black Group Pty Ltd [2016] VSC 190). Counsel conceded however, that the orders made the Court in those cases were not pooling orders; rather they were orders in the nature of directions, confirming that the liquidators were justified in acting upon decisions made by creditors to pool assets and liabilities. While not a question that needs to be resolved on the present application, I consider that there is real doubt whether s 90-15 of the IPSC should be construed as a source of power for the Court to make an order pooling the assets and liabilities of two or more companies in their respective liquidations. That is because specific powers have been conferred on the Court for that purpose under Div 8 of Pt 5.6, which powers are subject to a number of limitations and conditions. When a statute confers both a general power, not subject to limitations and qualifications, and a specific power, subject to limitations and qualifications, ordinarily the general power is construed as not authorising that which is the subject of the specific power: Anthony Hordern & Sons Ltd v Amalgamated Clothing & Allied Trades Union of Australia (1932) 47 CLR 1 at 7.

8    At the conclusion of the hearing on 16 May 2025, I made orders that the Companies be pooled pursuant to s 579E of the Act and that the costs of the proceeding be costs in the pooled windings up of the Companies. These are my reasons for making those orders.

Background

Appointment of the Liquidator

9    On 28 October 2022, the Companies were wound up on the petition of the Commissioner of Taxation (Commissioner) and the Liquidator was appointed as liquidator. The petitions were brought by the Commissioner following the commencement of an audit of the Companies by the Phoenix Taskforce of the Australian Taxation Office (ATO) in November 2020, which resulted in the imposition of significant administrative penalties and assessments for GST, superannuation and/or PAYG against the Companies.

Directors and shareholders of the Companies

10    Robert Parsons is the current director of Holdings and Workshop. Ernest Smith was a director of Holdings at the time of the Liquidator’s appointment, but filed a debtor’s petition on 1 October 2024, and is now an undischarged bankrupt disqualified from managing corporations. While Mr Smith was not formally appointed as a director of Workshop, the Liquidator has formed the view that at all material times, Mr Smith was acting as a de facto director of Workshop. That view is based, among other things, on Mr Smith’s receipt of correspondence from the ATO throughout 2020 and 2021, statements made to the Liquidator by Mr Parsons, and enquiries of the former workshop manager of Workshop made by the Liquidator.

11    Messrs Smith and Parsons each hold 50% of the shares issued in Holdings. Mr Smith owns 50% of the class A shares issued in Workshop and 100% of the class B shares, with the remaining class A shares owned by Chanyanut Sompech. The Liquidator formed the view that the shares held by Mr Smith likely vested in his trustees in bankruptcy, Andrew Aravanis and Ronil Prakash Roy.

The Companies’ commercial activities

12    Prior to liquidation, Workshop operated a panel beating business in Kununurra, Western Australia, from premises owned by Holdings. Holdings owned a freehold interest in two properties in Kununurra (the Kununurra properties) and a sublease of two properties in Nhulunbuy, Northern Territory (the Nhulunbuy properties), under a mining headlease that established the town of Nhulunbuy. Workshop did not maintain its own bank accounts, and income from the business and the Nhulunbuy properties was intermingled and used to meet liabilities owed by either Company.

13    Workshop operated the business from the Kununurra properties until it ceased trading in around November 2021. One of the Kununurra properties, 28 Poincettia Way, was sold by the Liquidator on 9 January 2024. The other of the Kununurra properties, 9 Salacca Loop, was previously utilised by Workshop as a car wrecking yard. That property was subsequently sold by the Liquidator in April 2025.

14    One of the Nhulunbuy properties, 2 Durack Close, was occupied by Mr Parsons, who operated a small vehicle mechanics business until July 2024, when Holdings’ rights as sub-lessee were sold by the liquidator on 12 July 2024. The other of the Nhulunbuy properties, 11 Miller Close, is occupied by Nhulunbuy Tyre Service Pty Ltd. From 2015 to 2019, rental payments were periodically paid by that entity into a Holdings’ bank account.

Financial records, creditors and the Liquidator’s remuneration

15    Despite notices issued to and requests made of Messrs Smith and Parsons, as well as various other enquiries, the Liquidator has not been able to secure the financial records of the Companies. Enquiries made of banks indicate that Workshop did not have any bank accounts in its name and staff members were paid from accounts in the name of Holdings.

16    A review of bank statements for accounts held by Holdings indicates that all income receipts for both Companies were deposited in Holdings’ accounts and all expenses for the Companies were paid from those accounts. In particular, income derived by Workshop was used to pay down facilities granted to Holdings by Westpac and secured by mortgages over three of Holdings’ real properties. The Liquidator therefore considers that the affairs of the Companies are intermingled.

17    The Liquidator has not yet called for formal proofs of debt from creditors. However, based on his investigations and claims asserted by creditors, he is aware of the following creditors:

18    Mr Smith has claimed that Mr Parsons is a creditor of Holdings for $150,000 in respect of improvements paid for in relation to the Durack Close property. However, no formal proof or substantiating evidence has been received by the Liquidator.

19    Based on assessments issued by the ATO, the Liquidator estimates that employees were owed $177,960 in respect of Holdings and $403,139 in respect of Workshop. However, the Liquidator has not been advised by the Department of Employment and Workplace Relations that any claims have been made by former employees against the Fair Entitlements Guarantee Scheme and enquiries made by the Liquidator of Mr Smith and the former workshop manager indicate that employee entitlements had been paid in full, except for superannuation.

20    The Liquidator’s remuneration and expenses for Workshop as at the date of Mr Reid’s 27 February 2025 affidavit were $104,077.48.27. That amount is well below the estimated value of Workshop’s claim against Holdings and I therefore accept the Liquidator’s submission that it does not give rise to any conflict in making this application.

Effect of the application on creditors

21    Absent pooling of the Companies, the creditors of Holdings may be paid in full and there may also be a surplus payable to members. This is dependent on a number of matters including whether Mr Parsons seeks to prove himself as a creditor of Holdings, quantification of the debt (if any) owed by Holdings to Workshop, and the costs and expenses associated with quantification and any application for judicial directions.

22    If pooling orders are made, the Liquidator estimates that a dividend of between 60 and 69 cents in the dollar will be payable to creditors in respect of the pooled liabilities. The Liquidator deposed to the potential impact that pooling would have on stakeholders as follows:

(a)    in respect of the Commissioner, the pooling orders will result in an increased dividend as funds held in the liquidation of Holdings will be available to Workshop’s creditors and the costs associated with quantifying intercompany claims will be avoided;

(b)    other Workshop creditors will see an improved dividend, as the pooling orders will allow the proceeds of Holdings’ assets, which were in large part improved by the application of Workshop’s income, to be applied towards payment of the debts of both Holdings and Workshop;

(c)    Telstra, which claims $1,218.21 from Holdings, will be adversely impacted by the pooling orders if a surplus were otherwise payable, due to the deficit between the pooled assets and the pooled liabilities; and

(d)    in respect of Messrs Parsons and Smith, being shareholders in Holdings, if a surplus were payable from Holdings, the pooling orders will cause them to lose any such surplus that would otherwise have been payable.

Statutory requirements

23    Section 579E(1) of the Act empowers the Court to make a pooling order if certain conditions are satisfied. It provides as follows:

If it appears to the Court that the following conditions are satisfied in relation to a group of 2 or more companies:

(a)    each company in the group is being wound up;

(b)    any of the following subparagraphs applies:

(i)    each company in the group is a related body corporate of each other company in the group;

(ii)    apart from this section, the companies in the group are jointly liable for one or more debts or claims;

(iii)    the companies in the group jointly own or operate particular property that is or was used, or for use, in connection with a business, a scheme, or an undertaking, carried on jointly by the companies in the group;

(iv)    one or more companies in the group own particular property that is or was used, or for use, by any or all of the companies in the group in connection with a business, a scheme, or an undertaking, carried on jointly by the companies in the group;

the Court may, if the Court is satisfied that it is just and equitable to do so, by order, determine that the group is a pooled group for the purposes of this section.

24    The term “group” in s 579E(1) is not defined, but the term has its ordinary meaning as a collective noun, that is a collection or plurality such that the companies comprising a group need not have any shared characteristics; it suffices that the applicant for a pooling order identify two or more companies in existence at the time of order: Morgan at [34]. As noted earlier, the “gateway” requirements stated in s 579E(1) must be met at the time that the Court makes the order: Morgan at [34]. The phrase “just and equitable” is defined in s 579E(12), set out below.

25    The condition in paragraph (a) of s 579E(1) is satisfied. With respect to the condition in paragraph (b), the Liquidator relied on sub-paragraph (iv). The following principles are applicable to that sub-paragraph:

(a)    the relevant property must be owned by the company at the time the pooling orders are made: Kirby Street at [44]–[47], cited with approval in Morgan at [39];

(b)    “property” includes tangible property as well as intangible property such as intellectual property or choses in action: Kirby Street at [57]–[58]; Morgan at [40];

(c)    a company may “use” property merely by holding it, providing that doing so provides some benefit or advantage: Kirby Street at [61]; Morgan at [47]; and

(d)    if several companies, by arrangement with one another, contributed part of what was required to carry on a single business, the business each element of which came from one or more of them might properly be characterised as a business “carried on jointly” by all of them. “Jointly” does not connote merely action in unison but extends also to circumstances in which there is co-ordinated or co-operative action, with the separate acts of each participant complementing or supplementing acts of the others: Kirby Street at [26], which definition was adopted in Hathway v Stacey Apartments Pty Ltd (In Liquidation), in the matter of Stacey Apartments Pty Ltd (In Liquidation) [2023] FCA 776 at [21], [27].

26    The effect of a pooling order is stated in s 579E(2) in the following terms:

If a pooling order comes into force in relation to a group of 2 or more companies:

(a)     each company in the group is taken to be jointly and severally liable for each debt payable by, and each claim against, each other company in the group; and

(b)     each debt payable by a company or companies in the group to any other company or companies in the group is extinguished; and

(c)     each claim that a company or companies in the group has against any other company or companies in the group is extinguished.

27    Further limitations on the making of a pooling orders are stated in s 579E(10) which relevantly provides:

The Court must not make a pooling order in relation to a group of 2 or more companies if:

(a)     both:

(i)    the Court is satisfied the order would materially disadvantage an eligible unsecured creditor of a company in the group; and

(ii)    the eligible unsecured creditor has not consented to the making of the order;

…

28    The effect of s 579E(10) is to preclude the Court from making a pooling order, even if the Court concludes it is “just and equitable” to make the order.

29    Section s 579E(11) provides that the Court may only make a pooling order on the application of the liquidator or liquidators of the companies in the group.

30    Section 579E(12) defines the phrase “just and equitable”. It provides as follows:

In determining whether it is just and equitable to make a pooling order, the Court must have regard to all of the following matters:

(a)    the extent to which:

(i)    a company in the group; and

(ii)    the officers or employees of a company in the group;

were involved in the management or operations of any of the other companies in the group;

(b)    the conduct of:

(i)    a company in the group; and

(ii)    the officers or employees of a company in the group;

    towards the creditors of any of the other companies in the group;

(c)    the extent to which the circumstances that gave rise to the winding up of any of the companies in the group are directly or indirectly attributable to the acts or omissions of:

(i)    any of the other companies in the group; or

(ii)    the officers or employees of any of the other companies in the group;

(d)    the extent to which the activities and business of the companies in the group have been intermingled;

(e)    the extent to which creditors of any of the companies in the group may be advantaged or disadvantaged by the making of the order;

(f)    any other relevant matters.

31    Section 579E(12) confers a discretion that, while wide, can only be exercised judicially in the light of the whole of the circumstances surrounding the relevant subject matter: Kirby Street at [77]–[78].

32    Section 579J requires that, if the liquidator or liquidators of the companies in a group apply for a pooling order, the liquidator or liquidators must give written notice of:

(a)    the application; or

(b)    a website where persons can view a copy of the application,

to each eligible unsecured creditor of each company in the group and, relevantly, such other persons (if any) as the Court directs.

33    As noted earlier, by orders made on 14 March 2025, the plaintiffs were required to give notice of the application to the creditors and/or contributories of the Companies and to ASIC. The Liquidator deposed to the steps taken to give notice of the application to the known creditors and contributories of the Companies in accordance with the orders made on 14 March 2025, which included notices given by post and email which included a link to a website from which a recipient of the notice could access the relevant court documents. I am therefore satisfied that the Liquidator has complied with s 579J.

Consideration

34    For the following reasons, I accepted the Liquidator’s submissions that this is an appropriate case in which to make pooling orders pursuant to s 579E of the Act.

35    First, the formal requirements contained in s 579E(1)(a) have been met. The evidence establishes that at the time of making the orders, Workshop and Holdings were two companies in existence, both of which were in liquidation.

36    Second, s 579E(1)(b)(iv) is established by virtue of Holdings owning the Miller Close property. Rent from the Miller Close property was paid into the Holdings bank account from which expenses of the business were paid, such that the Miller Close property was used to contribute to the cash flow needs of the business.

37    Third, I am satisfied that s 579E(10) does not preclude the making of a pooling order. Whilst Telstra will be adversely impacted by the pooling as it will receive between 60 and 69 cents in the dollar instead of being paid in full, this will ultimately result in Telstra being only a couple of hundred dollars worse off than if pooling were not ordered (the amount claimed by Telstra being $1,218.21). I accept the Liquidator’s submission that the disadvantage is not material given the size of Telstra’s business.

38    Fourth, I am satisfied that pooling of the Companies’ assets and liabilities is just and equitable, taking into account the factors stated in s 579(12). In that regard, I note the following matters:

(a)    The Companies’ funds have been intermingled for at least a decade, no intercompany loan accounts have been maintained, and the liquidator is without the books and records required to unscramble the egg.

(b)    Messrs Smith and Parsons were directors of both Holdings and Workshop, and the evidence supports the Liquidator’s view that Mr Smith was a de facto director of Workshop at the relevant times.

(c)    The Liquidator has been unable to determine whether staff were employed by one or other of the Companies. However, the ATO assessed both companies to be liable for Superannuation Guarantee Contributions and PAYG which suggests that employees employed to conduct the business were employed by one or other of the Companies.

(d)    Creditors of both entities were paid from Holdings’ accounts.

(e)    Pooling will benefit the creditors of Workshop who will receive a higher distribution from the liquidations if pooling orders are made.

(f)    No creditor or other interested party appeared at the hearing to oppose the orders sought, despite notice of the application being given by the Liquidator.

(g)    The Companies’ major creditor, the Commissioner, will receive an increased dividend if pooling is ordered as funds in the liquidation of Holdings will be available to pay the Commissioner’s claim as a creditor of Workshop.

(h)    While Telstra, as a creditor, will be disadvantaged, as stated above the disadvantage is not material. The only other potential creditor of Holdings who may be disadvantaged is Mr Parsons, if he were to make the $150,000 claim foreshadowed by Mr Smith described above. However, that claim is yet to be made and no evidence in support of it has been provided to the Liquidator or the Court.

(i)    The members of Holdings (Mr Smith’s estate and Mr Parsons) may be disadvantaged by pooling orders as they will not receive any surplus in the Holdings liquidation. However, I accept the Liquidator’s submission that any such prejudice is justified in light of the manner in which the Companies’ affairs were carried out by Messrs Smith and Parsons including their failure to maintain appropriate books and records so that the Companies’ affairs could be separately administered and causing the accrual of significant tax debt across both Companies.

(j)    Pooling will avoid the need to determine the extent of Holdings’ intercompany liability to Workshop in circumstances where there are limited books and records available to the Liquidator and the Liquidator considers that he has no way of reliably ascertaining the existence or quantum of any such debt. Pooling will also avoid the costs and delay associated with the quantification of Holdings’ intercompany liability, which would need to include an application for judicial directions.

39    It follows that it is appropriate to make an order that the Companies constitute a pooled group for the purposes of s 579E, along with an order that the costs of the proceeding be costs in the pooled windings up of the Companies.

Associate:

Dated:    5 June 2025